London, January 2012
I welcome the opportunity to talk to you this afternoon at this very timely seminar about the challenges facing the new Financial Conduct Authority (FCA).
I want to describe how I see the Financial Ombudsman Service working with the FCA in future. And how, working together with financial businesses and consumers, I hope we can establish a new approach to customer service, redress and complaint handling. A new partnership to build confidence in a vibrant, successful and customer-focused financial services sector.
And I think we may find at least a start to that partnership in an unlikely place – the continuing saga of payment protection insurance (PPI).
A fresh look at conduct regulation and redress is overdue. As is a change in the way in which financial businesses deal with their customers – in particular, those consumers who are dissatisfied with or confused about the service that has been provided.
Overdue – as I think is now widely accepted, not least by most of those directly involved in the financial services industry and its regulation – because the conduct of too many financial businesses has fallen short of consumers’ reasonable expectations. The last 12 years has seen a litany of mis-selling scandals and fines. And regulators seem neither to have had the tools nor the readiness to tackle systemic shortcomings head-on.
In consequence the Financial Ombudsman Service has too often been left to pick up much of the burden – handling hundreds of thousands of disputes about mortgage endowments, bank charges and payment protection insurance – not to mention other systemic and large-scale problems such as Equitable Life and split-capital investment trusts.
This back-catalogue of failure has defined much of the financial services industry’s dialogue with its customers and regulators over the past decade. And with destructive consequences. In particular, I think we should acknowledge the breakdown in trust around fair complaint handling.
Can customers be confident that, if things go wrong, their bank will respond fairly and promptly to their concern? For too many the answer has become no – they cannot have that confidence.
This doubt has, of course, been fed by claims-management companies who feed on distrust and worry – and who have every incentive to emphasise the negative. But this isn’t just about claims managers – as baleful as their influence may be.
The reality speaks for itself – too often financial businesses have delayed responding to justified grievances and thrown barriers in the way of those seeking fair redress. PPI is but the latest and most significant example of this.
But I believe there’s good news too. There’s growing consensus about the scale and nature of the problem. And in the circumstances, there’s a great deal of commonality of analysis about where the solutions lie.
This consensus is, I think, well captured in the government’s proposals. A new regulator resourced for – and focused on – “conduct” issues. Critically, a new culture of regulation that the FSA itself has started to map out – and that I know Martin Wheatley and his shadow Financial Conduct Authority team are developing. A regulator ready and able to take action where that is required – and equipped to make decisions, even when these may not always be welcomed by all its many stakeholders.
The ombudsman will certainly play its part in this new framework, and we’ll work closely and collaboratively with the Financial Conduct Authority. We welcome the commitment in the government’s thinking to an impartial and independent ombudsman service. A service that can step in to resolve individual cases where financial businesses and their customers cannot agree.
Securing our independence is not always as straightforward as it may first appear. But our independence from industry and consumer groups – and indeed from regulation – is critical, if we are to maintain the confidence of all parties in our independent-minded and impartial judgements in the disputes we resolve.
The government’s proposals also place new responsibilities on the ombudsman service to alert the regulator to new issues that we see emerging through our work. Issues where perhaps the regulator should step in and take action. Nipping problems in the bud – before they flower into widespread consumer detriment that involves costs for all concerned.
This is a responsibility that we already take seriously. We meet regularly with the FSA and OFT – not least through the formal coordination committee – to provide insight into the regulator’s assessment of conduct risks. Our experience of the problems experienced by consumers can directly inform regulatory thinking.
So I see a new regulator better armed than before with insights into the real issues experienced by consumers across financial services. And I hope I will also see a regulator better placed and more willing to take action where problems have arisen.
New powers – not least those under “section 404” – provide important new opportunities for the Financial Conduct Authority to step in, to ensure that a business, or indeed a sector, that has acted unfairly puts things right. Not just for the future – but also to compensate customers who have suffered, without needing to rely on a complaints-based approach to redress.
It is, of course, all too easy to lump responsibilities onto a new regulatory body. The FCA will have a wide and challenging remit. But it cannot and should not be expected to carry the whole burden. No regulatory “conduct regime” can be a “zero failure” regime – nor do I suggest it should try to be.
This is why the ombudsman provides an important safeguard for individual consumers where things have gone wrong. Our work will inform consumers and financial businesses more widely, as we continue to provide more and more information about our approach – culminating, I expect, in our publication of ombudsman decisions.
I started this afternoon by talking about the breakdown in trust between consumers and financial businesses. Putting this right is something everyone here will need to work at. It certainly won’t happen overnight. And while consumer confidence is something that can be facilitated by regulation, the real responsibilities rest with financial businesses and consumers themselves.
So I hope I will be forgiven if I suggest a place where banks and consumers may find common cause – and start on that journey back to trust and confidence.
One of the most intense battlegrounds between consumers and the financial services industry over the past decade has been payment protection insurance. It has a toxic history – and few emerge from the story unscathed.
PPI mis-selling has already spawned hundreds of thousands of justified complaints and much mistrust. There are many more complaints to come. Record numbers of these complaints are now with the ombudsman service.
And as we have all seen in the past, large-scale complaint handling – if done badly – causes additional costs both for financial businesses and customers alike. And intense reputational damage for the financial services sector as a whole.
So surprising as it may seem, PPI is an area where I see real opportunity for partnership working. Consumers and financial businesses all want to see confidence restored in complaints handling.
Confidence that a customer needs no paid representative or clever tricks to ensure that their case is handled fairly. Confidence that the ombudsman cuts through jargon and the small print to reach clear and fair answers to disputes, if agreement can’t be reached promptly between the consumer and the business. Confidence that concerns and complaints will be handled efficiently, and that outcomes and any redress will be clear and fair both to businesses and to consumers.
PPI is certainly not a problem that’s going to go away any time soon. It might be a good place to start re-building trust and a new partnership between consumers and financial businesses.